The part of this morning’s Newspoll that stood out for me wasn’t the down in the usual ups and downs of party support and leadership satisfaction, it was the results of the question on which party the respondent thought would ‘best handle the issue of the economy’.

Labor was five points in front (44/39), the first time it has been in front under Rudd, and indeed the first time it has been in front since March 1990. Admittedly Newspoll didn’t again ask this precise question between 1990 and 2005, but chances are that if they had Labor would not have been in the lead. The ‘recession we had to have’ took hold shortly afterward, and on more precise economic questions on inflation, interest rates and unemployment Labor was behind.

Perhaps this bad result for the Liberals on the economy is a residual Barnaby effect – a finance spokesman vague on the difference between a million and a billion is not exactly confidence inspiring – plus a downward general ‘Liberal performance’ perception that seems to infect all their issue ratings, regardless of whether or not anything relevant to that issue has occurred.

But if it is not these factors, it is a worry because this is one of the few issues – the others being taxation, defence, national security and immigration – on which the Coalition has a history of strength relative to Labor.

The case for it being a lasting problem comes from the apparent good performance of the economy under Labor, at least compared to other countries. Because the economy is fairly easy for voters to assess, there is less reliance on party stereotypes in rating economic performance than for other issues. The case for it being a temporary problem is that there has been a big drop in just a month, which suggests recent highly salient factors may have had an impact.

But while the rhetoric ticks boxes, the detail was less impressive. The stimulus programs are easy targets for wasteful spending, but even in the unlikely event the Coalition wins the 2010 election they’ll be largely over anyway. It’s structural cuts that need to be made to deliver a low-tax agenda, and there are none of these in the speech. With the Coalition opposing Labor spending cuts, and promising a big spending increase of its own to fund parental leave, we are just left hoping that no announced cuts is a political tactic and not a governing strategy.

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26 Responses to “What’s happening to Liberal economic credibility?”

I’d like to think Tony’s centrally planned, no price signal, climate change hoopla and his rhetorical confusion between ‘cost to government’ and ‘cost to society’ was a contributing factor, but that might be overestimating the public’s economic literacy.

I think it’s because of things like Barnaby being a fool, Abbott’s maternity leave scheme being a huge new tax (vs. Labor’s scheme which most people seem to like), and possibly just boredom causing people to forget about the ETS which was where the Libs were making the greatest inroads (and possibly money wasted on the insulation package, which has disappeared as an issue of late also).

Interest rates rising is not an issue that bites the government now because it has been well explained that drastically low interest rates were a result of bad things and rising interest rates show the economy is on the improve. The public education campaign on interest rates by both Swan and the RBA has actually been quite effective.

If you ask me, the Abbott maternity leave proposal has an air of “too generous to be wise” about it, rather like Medicare Gold under Latham. People may initially like the sound of it for their own gain, but can easily be convinced it can’t be economically a good idea.

Abbott’s economic talk yesterday also talked of the government having to cut back on debt, but this doesn’t jibe well with his maternity leave claim to business that the levy to pay for it was just a temporary measure.

There is every sign that, as he has said in the past, he is actually not very interested in economics. There is also every sign that, as with his sudden opportunistic turnaround on an ETS, and perhaps now on supporting the Labor hospital funding plan, he is a policy flake generally.

The Liberal’s economic credibility always was largely a matter of having been in the right place at the right time, in my view. Still, Howard and Costello at least had some innate belief in the value of markets. Abbott simply doesn’t understand them, and some of his colleagues – most notably the brilliant Barnaby – outright distrust/reject them, as they reward people according to what they produce rather than how they vote.

Tom – I think it is deeper than that, going to what the parties are perceived as standing for. People join the Liberal Party because they think that prudent economic management should be put above other possible goals, and this fits with the interests of the party’s sociological base in business and the common sense of its supporters. It tends to get voted in when Labor has made a mess of things.

Belief in markets is secondary; a relatively small section of the educated class believes this defines ‘economic credibility’.

Let me agree with the Troll formerly known as TomN. At least Howard and Costello knew the value of ongoing reform even if they didn’t always perform. What is missing though is where to place Rudd on the Abbott v Barnaby scale on understanding – mistrust of markets?

The poll may say Labour ahead on economic management, but that’s just swings and round-a-bouts. I would still say (and perhaps somehwt blindly) that the ‘core’ of the population have Libs ahead, but that there are swinging, band wagon people in the population that ticked Labour…for now.
Much of the rise in his supposed economic credibility has been Australia’s sailing through the GFC. However, labour had little to do with this. Rather, Hawke/ Keating reforms & Libs paying off the debt gave Aus economy flexibility, whilst Asian demand propped up the economy.
So when will the gloss come off labour’s eco management. Like NSW and Labour, it will take time to materialise. Time for the wheels to fall off, time for disrepair to take place, time for people to wake up to the spin, time for other economies to overtake you…etc But when the wheels fall off, they fall off. And no doubt labour is heading in this direction. They have no spine, done no genuine economic reform, regulations are generally up, debt is generally up. All economic policies are pointing the wrong way.

So, I wouldn’t worry too much on economic competence, they will get there in the end. More troubling for me is your comment about the difficulty of implementing ‘structural’ reforms….which we really need!

Andrew Norton
March 31st, 2010 10:07
…….. Labor has made a mess of things.

Given that Labor has pretty much defined our social policy (with the Liberals maintaining the reforms such as medicare, super, dawkin universities, HECS etc. and so on), that Labor has been responsible for most of the economic reform over the last 20 years (floating the dollar, reduction of tariffs, centralised wage fixing to enterprise bargaining, privatising Qantas and commonwealth bank, opening up the banking industry, financial reform and so on) and the Liberals have been largely responsible for the creeping middle class welfare (baby bonus, first home buyers grant), this seems to me to be a very outdated view, the sort of thing I would expect from a welded on party faithful that has drunk the cool aid. It is not the sort of thing I would expect from someone whose career is research.

Charles – It’s just a statement of history – the Liberal transitions in 1949, 1975 and 1996 were all after periods in which Labor was perceived to have performed badly. That the Hawke-Keating government did many good things is not inconsistent with it being partly to blame for and being blamed for the early 1990s recession. It was true of Kennett in 1992, and will likely be true of O’Farrell in NSW in 2011. Indeed, it is a sign of Liberal weakness that they rarely win when things are going reasonably well, as Labor did in Victoria in 1999 and federally in 2007.

Nobody is attacking science as such. Some people are attacking some scientists.

There are money trails in all directions in the climate change debate: it is better to “divide through” for it and get back to the actual issues.

Given the way the news has been full of the economic problems of everyone else, while Oz sails on quite happily, it is hardly surprising if the incumbent government gets economic management credibility. The Hawke Government had that too, and deserved it. The Keating Govt. lost it, and deserved to as well. Yes, the Rudd Government is gaining the benefit of Labor economic reform and Howard-Costello fiscal reform but, then, so are we all.

Homer – Prior to 1989 there wasn’t any regular polling that asked respondents to compare the parties on particular issues. When it did start in 1989, as noted in the post, Labor was slightly in front – but this was part of a general Liberal dip due to Peacock’s leadership issues, so it was not a compelling lead – (1-8% over the various surveys, much less than on ‘Labor’ issues). However they were generally behind in polls on inflation, interest rates, and unemployment in Newspoll and the Australian Election Survey 1990-1996.

While as I argued economic issues are more subject to empirical evidence than other issues, over the last 20 years the Liberals have won the vast majority of comparative surveys on economic issues, and this remains an issue on which I think they can fairly easily establish their credibility – unlike the ‘spend’ issues of education and health.

“The Liberal transitions in 1949, 1975 and 1996 were all after periods in which Labor was perceived to have performed badly.” True.

However, it does not follow that the Liberals then performed well as economic managers – which seemed to be Andrew’s inference. Post ’75 were wasted years, post ’96 at least the first two terms reasonable then downhill. In fact there is very little evidence of any substance supporting a particular view of Liberal Party competency in economic management.

I would add that Howard was not only the beneficiary of Hawke /Keating structral reforms he also greatly benefited from his so-called ‘inherited basket case’ in ’96 resulting from the ’91 recession – not only politically but also economically.

The handing of the Asian financial crisis in ’97 is another example of Howard benefiting from the Labor’s economic dowry – in this case a floating exchange rate.
Apart from the Hawke/Keating government, any objective assessment would suggest that neither political party coud be said to have demonstrated any exceptional skills in managing the Oz economy!!

ennui – As I said in response to Tom at comment 7, this argument relies on economic analysis which is way, way beyond the thinking of the typical opinion poll respondent. The apparent performance of Howard, and before him of Fraser versus Whitlam, will have shaped modern opinion on this, along with (in my theory of issue opinion) perceptions of the relative priority the parties give the various issues.

To take a different example, it wouldn’t be hard to argue that Labor’s long-term record on education is far from impressive , and if better than the Liberal record only trivially so. Yet Labor are almost always regarded as better on education – marks for sincerity and priority rather than actual performance.

Charles – Well I suppose they could just vote Liberal to punish Labor with no expectation that things will actually improve (NSW 2011?), but I don’t think that has been the case federally.

My point is that – believe it or not! – climate is not the only thing scientists study. It is hyperbole to convert an attack on climate scientists into an attack on ‘science’. Indeed, such is the prestige of science that even in the climate change debate both sides claim it is on their side, and that the other side has betrayed it.

There are numerous cases where particular groups object to particular forms of scientific research – say on GM foods, or human embryos – but we cannot infer from this general opposition to science, even if such inferences are made for polemical purposes.

Still not the same as saying Liberals were put in to clean up the mess.
.
Re science: I see you point, however the list of science being opposed is getting quite large. GM foods and embryos are example of advances the use of which is being questioned, fair enough, you don’t have to accept things just because they are possible. The debate over climate warming is attacking the scientific method. There is a difference.

While I agree with you that the public’s view on economic credibility is more closely correlated with the contemporaneous health of the economy and their own employment and income situation, the media can also influence public perceptions through the way that they filter a leaders’ speeches and policies. Oakes has a piece today more or less implying that Abbott was the most economically illiterate leader of a major party since Whitlam. Regardless of the truth of the implication, as that view becomes consolidated and echoed within the commentariat it can then become conventional wisdom within the electorate as well. That is the sense in which the headland speech was so disappointing. There was nothing in it besides a vague committment to the previous government’s macro philosophy. Certainly no agenda for reform either on either the micro or macro front and no sense of which government programs he would cut to return the budget to surplus more quickly. On top of that he made himself look stupid with his comparison between the Asian crisis and the GFC. Consequently the media will continue to push the line that he is an economic lightweight. Not good when you are a party that has traditionally relied on the opposite public perception to help you into government.

I posted this over at Larvatus Prodeo but they will no longer accept my comment submissions. Neither will Quiggin. Partly because they are way to long. But mainly because they substantiate ideologically inconvenient truths. The academic Left’s treatment of the Howard government is, how can I put this charitably, unsatisfactory.

JS

CREDIT WHERE CREDIT IS DUE

The Howard-L/NP has been short-changed by both the public and pundits for its good record in economic management from the mid-nineties through late noughties. A siginficant amount of credit should go to the Keating-ALP which liberalised capital and labour markets. The most credit goes to the PRC whose labour and capital outflows have buoyed the whole economy.

The GFC was primarily a banking crisis based on poor risk management in the provision of credit for property finance. AUS’s financial system was evidently much sounder than the RoWs, largely due to Howard-Costello’s policy legacy.

AUS’s property market was the most over-valued in the Anglo world. Yet it proved the least susceptible to bust. Thats because it had much more internal strength, a fact over-looked by journalists and academics looking for a good peg to on which to hang their party line.

The media-academia Left have ignored this for obvious reasons. What is harder to understand is why the L/NP failed to make political capital out of their policy success. They really are as thick as two planks when it comes to talking up their own good game.

Howard-Costello devised the best factorial/financial/fiscal strategy for surviving a credit crisis. Their factorial policy was based on driving up immigration rates, particularly of high-IQ Asian students, during the noughties. Meanwhile Costello pushed the budget back into black, providing a war-chest for future stimulus spending (the future fund). And the RBA kept a lid on the property market bubble by gradually inching up interest rates from mid-noughties onwards, as well as implementing stricter qualitative loan portfolio regulation as per the Wallis Report.

The rising immigration rate put enormous up-ward pressure on rents that serviced AUS’s massive residential investment property market. Rents directly, or by implication, service mortgages (in P/E terms rents are the Earnings to housing Prices). The AUS property had some of the highest housing prices on earth but these were based on solid fundamentals, so long as employment remained high and interest rates did not go through the roof.

So most of AUS’s banks mortgages were blue-chip rather than sub-prime. This was evident from the extremely low rate of non-performing loans and bad debts booked by the banks in the second half of the noughties.

I just stumbled over this AUS trade report, dated 12 DEC 08 which confirms everything I was saying in late 2008-early 09 relating to the extraordinary differences between the AUS and US property markets:

Strong Profits: The Australian banking system remains highly profitable by international standards. Over the most recent six-month reporting period, headline profits after tax and minority interests for the five largest banks were up around 12 per cent on the level of last year and were double those of five years ago

High Credit Rating: Australian-owned banks have been viewed favourably by world’s major rating agencies. Among the world’s 100 largest banks by assets, there are 12 banks that are AA rated or above, and four of these are Australian…. no Australian-owned bank has had its rating downgraded since the beginning of the global financial crisis.(4)

Minimal Sub-prime Housing Loans: … non-conforming loans account for less than one per cent of housing loans outstanding in Australia ? compared with around 12 per cent in the USA.

Low Non-performing Loans: …. As at June 2008, these NPL assets accounted for around 0.7 per cent(7) of banks’ on-balance sheets assets…The NPL ratio for the USA was 1.7 per cent in March 2008 (the latest data available from the IMF), Japan (1.4 per cent), Canada (0.9 per cent) and Hong Kong (0.8 per cent)

The Howard-Costello factorial policy of allowing high immigration to prop up the property market provided a strong floor for AUS’s economy during a period of high stress. The Rudd-Swan government was able to raise the ceiling of AUS economy performance by using other instruments at its disposal, namely:

But even these policies owed much to Howard-Costello. The RBA was able to deliver a cash-injection to heavily leveraged households because interest rates in MAR 2008 were quite high, the cash rate was 7%. By early 2009 it was down to 3%. Thats a four percent cut on a mortgage market of $1 trillion, equivalent to $40 billion cash straight into cash-strapped households. So there was plenty of spare meat on the financial bone.

The same could be said for fiscal policy where Howard-Costello left the Treasury with a huge reserve of funds, courtesy of the mineral boom, asset sales and the GST bonanza. This meant that the Treasury could easily afford to go into debt to finance various stimulus measures, from the $900 handout to insulation installation schemes.

But all the credit owing to Howard-Costello has somehow been slipped down a memory hole by academics. In the run-up to the GFC Quiggin was suggesting a recession was a real likelihood in AUS and talking darkly about China’s likely ”severe recession” turning into political revolt. Bahnisch posted an interminable four post rave on the “the state of capitalism today”, volumes I, II, III and IV which offered no predictions about either the PRC or AUS economy.

I apologise for the lengthy comment. But I feel that the media-academic Left have totally misrepresented the GFC, both in the US and AUS.

In the US its true that the top-down financial suppliers of the housing credit screwed up big time. Masters of the Universe had feet of clay. But its also true that the bottom-up political demanders of housing credit also went off the rails, particularly those seeking easier lending terms on behalf of “underserved communities”.

The media-academia Left quite properly draw attention to Wall Streets failings. But they ignore or misdirect the failings of Main Street.

In AUS the situation is almost the opposite. Here both top-down authority and bottom-up autonomies managed money in a much better tradition.

Howard-L/NP managed the factorial, financial and fiscal underpinnings of the nations economic system, particularly housing credit, in an able manner. The key was linking high immigration to both defraying the cost of education and underpinning housing demand values, as well as undermining labour supply costs.

And AUS households were very conscientious in paying their mortgage. Very low rates of non-performing loans and bad debts. No one wants to wind up moving back to be parents, living in shared accommodation, standing in the queue for assisted or public housing or worse still living rough on the streets.

YOu would think that the Left media-academia might want to learn something by comparing US with AUS. But you would be sadly mistaken. All they want to do is push their own ideological agenda. They are not much better than the free-market ideologues they constantly criticise.

I am sure that I am belabouring the point. But it seems incredible to me that the GFC has passed this country with a massive oversight by intellectuals as to both its:

- economic causes
- policy cures

Quiggin blames it all on Wall Street and housing speculation. But on those grounds AUS should have crashed as badly if not worse than the US. We had major equity and property booms.

Yet AUS and the PRC sailed through, as I predicted. Whilst the US and EU fell down badly.

So what gives. Surely Andrew Norton is interested in salvaging the reputation of AUS capitalism and its most notable defender, JW Howard.

I am no uncritical fan of AUS capitalism, although I have alot of sympathy for the old devil Howard.

I believe I can explain why AUS survived and how that relates to the L/NP. But the Right seem ignorant whilst the Left are tendentious on this subject.

All the credit owing to Howard-Costello has somehow been slipped down a memory hole by academics. In the run-up to the GFC Quiggin was suggesting a recession was a real likelihood in AUS and talking darkly about China’s likely ”severe recession” turning into political revolt. Bahnisch posted an interminable four post rave on the “the state of capitalism today”, volumes I, II, III and IV which offered no predictions about either the PRC or AUS economy.

On 23 OCT 08 I correctly predicted that AUS would probably not experience a recesssion, mainly due to the strength of its property market:

At the moment a recession appears to be odds-off. Although a slow down in Asian growth and a rise in global interest rates might cause property market capitulation.

It seems that the commonwealths financial (interest rate), fiscal (home grants and capital gains tax breaks) and now factoral (immigration) policy are all aimed at and predicated on boosting property prices. I call this plus the massive super handouts to geezers the “wealthfare state”.

Even then the govt and populace will throw everything at the property market to keep a high floor on prices. More home grants, tax breaks, bail-outs, raids on super, infrastrucure splurges – you name it.

The Great Australian Dream will not go down without a fight. Neighbours Home and Away last stand.

Back on 04 FEB 09, when the AUS equities market had tanked, I correctly predicted that “the PRC will engineer a relatively soft-landing for its largely-export driven economy. Unemployment in export related industries will rise but the largely state-run economy will turn to internal development, largely in the peasant hinterlands. This will have the added benefit of politically pacifying unrest in the hinterland”. In another comment on the same dayI also more or less correctly predicted that the AUS economy would sail through “Australia will ride out this recession relatively less-scathed than comparable economies…About 12-24 months of flat growth [in real per capita incomes]“.

I am mildly annoyed that L/NP are not getting well-earned political credit for their good economic administration. I am even more annoyed that that I am not getting intellectual credit for having predicted all this.

So I expect that the LIB-DEMs, GREENs and BNP to pick up votes at the expense of TORIES and LAB. Disenchantment with major parties is the pattern in the EU elections.

But the TORIES should win a plurality, near 40% of the vote by my guess. I think LAB will get a real hiding, down to very low levels by historic standards. Lots of rusted-onLAB voters leaving the party in droves.